http://www.businesstimes.com.sg/real...ced-apartments
QC rules still apply for conversions to serviced apartments
A key motivation for developers seeking change is hope of exemption from 2-year sales deadline, without paying any penalty
By Kalpana Rashiwala
[email protected]@KalpanaBT
26 Feb
DEVELOPERS that may be thinking of converting private residential projects on sites that are subject to Qualifying Certificate (QC) conditions to serviced apartments may be heading for a dead end.
The Singapore Land Authority (SLA) would still require them to sell the whole project within the stipulated two years after completion - or pay extension charges.
An SLA spokesman told BT: "Land which is bought with approval under a qualifying certificate is bound by the QC condition that all the completed units must be sold within two years of obtaining TOP (Temporary Occupation Permit). This condition remains in force even where a developer obtains URA approval to convert the entire development into serviced apartments."
BT understands that a key motivation for developers seeking change is hope of exemption from the two-year sales deadline, without paying any penalty.
"Instead of paying extension charges, which are quite high," said a market watcher, "these developers are probably hoping that if they were to turn their projects to serviced apartments, the QC condition could be lifted as they intend to operate the serviced residences.
"When the market recovers, these developers could potentially seek to convert the property back to a condo, obtain approval for strata subdivision and sell the condo units. Basically, their strategy is to convert the project to serviced apartments to ride out the market."
A property consultant added: "Basically, many of these projects are in the prime districts, and high-end prices have tanked, so these developers are not ready to accept fair value prices. They are looking for a way to buy time, hoping that the high-end market will recover or that the authorities will relax on QC conditions."
Under the Residential Property Act, a foreign company, defined as one that has even a single non-Singaporean shareholder and/or director, has to get a QC from SLA's Land Dealings (Approval) Unit before it may buy a private residential site. All listed property developers are deemed foreign companies.
QC conditions require the developer to complete construction of the project and obtain TOP within the stipulated timeframe - since Aug 5, 2010, this has been set at five years, though prior to that, this could have stretched to seven years. The developer is also required to finish selling all units in the project within two years of the TOP date. The rules are aimed at preventing foreign developers from hoarding or speculating in residential land in Singapore.
Since January 2011, a developer that wants extra time on either of these two deadlines has to pay extension charges - set at per annum rates of 8, 16 and 24 per cent of the site's purchase price for the first, second and third/subsequent years of extension, respectively. For the two-year deadline to finish selling the project, the extension charges are pro-rated based on the proportion of unsold units. The extension charges may be paid on a half-yearly basis.
Sites bought from the Government Land Sales Programme and on Sentosa Cove do not require QC.
The SLA spokesman said: "In such a situation where the development is converted into serviced apartments, the developer would be required to sell the entire development as URA (Urban Redevelopment Authority) requires serviced apartments to be under one ownership and strata subdivision into individual units is not allowed.
"If it is unable to sell within the stipulated period, the developer can apply for an extension of time to sell and if approval is granted, an extension charge is payable by the developer."
Serviced apartments may be considered on land zoned for residential use in URA's Master Plan. This includes conversion of approved residential developments into serviced apartments.
"Serviced apartments may also be considered for the residential component of mixed-use sites," said a URA spokesman.
She said that the planning authority evaluates all serviced apartment proposals against a set of established guidelines. "Generally, the proposed serviced apartments should not be located in the midst of established residential areas and should front major roads. The guidelines ensure that serviced apartment developments are compatible with the surrounding uses and minimise any potential nuisance or disturbance to surrounding users."
Since strata division is not allowed in serviced apartments, developers who wish to restyle a condo into a serviced apartment development would need to make an application to the authorities to "extinguish" the strata titles in the project. Prior to that, the developer would have to buy back any units it had sold in the project.
If a developer wishes to turn, say, one block in a condo project comprising two or more blocks into serviced apartments, the authorities are likely to subject the application to detailed evaluation and may even impose additional criteria on the developer to ensure that the residents living in the strata-titled units in the other block or blocks are agreeable with the idea.
The topic of developers affected by QC conditions considering turning their housing projects to serviced residences has gained currency following City Developments executive chairman Kwek Leng Beng's comments last week on the Nouvel 18 condo that it developed jointly with Wing Tai. The project received TOP at the end of 2014. "There are two blocks. I think . . . we still have two years to do something about it, but in the meantime, we hope to apply for a waiver for the Qualifying Certificate . . . there is also a possibility we may convert one block into serviced apartments. Don't forget Shangri-La, at the side, they also have very beautiful serviced apartments which are doing very well."
Back in 2013, OUE is said to have enquired with the authorities about changing its Twin Peaks condo project in Leonie Hill Road into serviced residences but did not proceed as it found the conditions and regulations too impractical. The 462-unit project received TOP recently.
Word on the street is that Bukit Sembawang too has considered converting its Paterson Collection project which it has yet to launch, into serviced apartments.
Property industry players told BT that it would not be easy to convert a completed condo project or even one under construction into serviced residences - as there may not be provision for back-of-house facilities such as for laundry services and storage of towels as well as a breakfast area, reception and concierge services.
"Also," said an observer, "for serviced apartments, you need sprinklers within the units. Internal walkways in the development will also have to be sufficiently wide for service trolleys."
Besides interior criteria, URA probably also factors in the external environment, including the width of surrounding roads to gauge if they can handle the additional traffic arising from the conversion to serviced residences, he added.
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